President of Compliance Group: Regulators must coordinate under Dodd-Frank

A mortgage compliance officer with more than 20 years in the mortgage industry, Annemaria Allen brings an experienced perspective to The Compliance Group. An accomplished professional, Allen is a firm believer in preventative management strategies to assist clients with compliance issues before they become detrimental to a company. In this edition of In This Corner, she gives her take on how new financial regulation will affect compliance across the board.
Tell me a little bit about how Dodd-Frank affects state-by-state compliance. What's the overall consensus? What are the benefits? What are the downfalls?
Dodd-Frank will be affecting state-by-state compliance by mandating cooperation of state and federal regulators, coordinating examination efforts and performing an increase in more risk-based examination reviews rather than just regulatory in nature. In addition, the information sharing between federal and state agencies will greatly increase. The overall consensus is that the implementation of this bill will be a very large undertaking, and there will be a lot of wait and see on what this bureau will be able to perform. There are parts of the bill that are beneficial such as rulemaking authority under one umbrella and coordination in rulemaking between the various regulations allowing for consistency and ease of compliance. The down falls are the uncertainty of how the bureau will transition and work, how the current federal regulatory agencies will transfer their powers to CFPB, the states will have the ability to force a proposed rulemaking, loan product and pricing impacts on what will be allowed and what will not, unprecedented service provider rules, short implementation period and much much more.
How important is it to outsource vendors? What are the trends you see with this strategy?
It is extremely important to know which products are best to outsource and which are best to retain internally. In some cases, once you pass a certain volume amount, it may be more beneficial to retain certain functions internally and only outsource on an overflow basis. The most beneficial part of outsourcing is that you do not have to worry about hiring new staff or laying off staff due to the ebb and flow of volume that our industry commonly experiences. Most companies prefer to outsource due to the fact that it saves on high costs associated with labor and benefits. Trends with outsourcing are the ability to receive expert advice and consulting, less overall labor and benefits cost, more time to focus on their overall business model to make loans and not get tied up in the tedious backend stuff, and having a clear understanding that outsourcing certain functions such as, but not limited to, licensing, compliance and quality control can save them thousands upon thousands of dollars in potential regulatory fines, penalties and revoking or suspending of licenses.
What's the latest news with RESPA?
The latest news with RESPA is that lenders are getting more used to what is required on the GFE. Most requirements under RESPA are being figured out by lenders to the best of their ability. We are still unsure if the new disclosure requirements are benefiting borrowers or making them more confused. There seems to still be a push to simplify various loan disclosures for the borrowers so they have a better understanding of what they are getting into. It is apparent that there are various interpretations of the GFE from lenders and state regulators on how the GFE must be properly filled out, and we believe at this time there is still some forgiveness on mastering the proper way to fill out the GFE. In addition, the FAQ's that support how to fill out the GFE have not changed as frequently as when the new rules were first rolled out.
Tell me about the loan quality initiative.
The new FannieMae LQI initiative was developed because there were many issues related to compliance with FannieMae's selling policies, which are not detected until after loans are delinquent or through the foreclosure process. LQI is intended to promote improved loan delivery data that is complete, accurate and fully reflective of the terms of the mortgage. Most of LQI is considered, in my opinion, "Back to the Basics." It's how loans should have always been done and were done years ago before sub-prime. There are several components of LQI that are new such as loan delivery enhancements, FannieMae's new EarlyCheck system and mandating that a pre-funding QC plan and review be implemented. It is also important for lenders who outsource their post funding quality control to make sure they perform due diligence on their QC vendor and that their vendor have a clear understanding and knowledge base of the QC process.
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